Dean Baker is of the “Krugman School” of government debt economics, “it’s money we will be paying ourselves,” but with a slight twist. He says that, “the foreign ownership of US financial assets, including government debt, is determined by our trade deficit, not our budget deficit.”
Again with the pretense that there is no difference between government debt and private corporate assets, and he even goes so far as to include government debt as a “US financial asset.” If somebody owns the Bank of America, they own a “US financial asset.” (Well, maybe.) If they own US government debt, they own a “US financial liability.” Their ownership of that debt is an asset to them, but it is a liability on the US side of the equation.
And that debt has nothing whatever to do with the trade deficit.
If we owe $600 million to Japan, we are going to owe that money to them no matter what the trade deficit does, because the government does not participate in the trade deficit. Private companies import and export goods and services, and it is that import and export which creates the trade deficit. That’s why it is called the “trade deficit,” because it is caused by trade. Get it? If that trade deficit drops to zero, we still owe $600 million to Japan.
Krugman at least had enough sanity to pretend that our government owing money to China was balanced by American companies owning subsidiaries located in China. Baker tries to tell us that our government owing money to China is balanced by our population buying televisions made in China, and that everything will be okay if we just make our money worthless. We won’t have to pay our debt if nobody wants our money.
“Ha, ha. Fooled you, didn’t we? Bought all your televisions on credit, then turned our money into garbage. That’ll teach you to mess with America.”
He then goes on to talk about the enormous debt which we are passing on to our children in the form of the effects of climate change, and that is a point with which I am in total agreement. I suspect, in fact, that we are underestimating the damage that has already been done. It seems odd to me that someone who is as clearheaded about that can be so stubborn about the need to serve the immediate economic wishes of a greedy generation and unwilling to seek financial stability.